Geostrategic Oil Interests and the Gulf

Oil constitutes more than 90 percent of all transport fuels and 35 percent of the world’s primary energy demand – no doubt, the world economy is addicted to oil and the Gulf countries have what everybody is longing for: They possess a breathtaking 61 percent of worldwide reserves and contribute 30 percent of production.

Dr. Eckart Woertz
Economics Program Manager
Gulf Research Center, Dubai
(Contact details of Dr. Eckart Woertz is available to registered journalists)

Oil constitutes more than 90 percent of all transport fuels and 35 percent of the world’s primary energy demand – no doubt, the world economy is addicted to oil and the Gulf countries have what everybody is longing for: They possess a breathtaking 61 percent of worldwide reserves and contribute 30 percent of production. Thus, with time, their importance will grow further. As demand continues to rise and production in other regions like the US and the North Sea declines, more and more countries will have to turn to the Gulf for imports of oil. On top of that the region becomes increasingly important in the gas business, as Qatar and Iran intend to expand their exports. All this constitutes a potentially explosive cocktail of geo-strategic interests from various sides, namely from the US, West Europe and China.

All of them consume much more oil than they produce. China used to be a net exporter until 1993. But now it imports 40 percent of its requirements – in 20 years it will be 70 percent. No wonder China is heavily engaging in energy diplomacy and trying to secure oil imports from around the world. In Africa it has vast investments in Sudan, Angola, and Nigeria while in Canada it has taken on tar sand projects in the north of the country. Recently it bought Petro-Kazakhstan for $ 4.2 billion and the first pipeline from Kazakhstan to China has been inaugurated. Half of its imports though come from the Gulf, mainly Saudi Arabia. King Abdullah and the Chinese President Hu Jintao emphasized this increasingly important relationship during a series of mutual visits at the beginning of this year. China is building a multibillion sea port in Gwadar, Pakistan that may serve as the starting point for a pipeline into its west, while Saudi Aramco invests in Chinese refinery capacity for sour crude and helps the country build up a strategic oil reserve.

On the political level, China has tried to rein in the influence of the US in Central Asia with the help of the Shanghai Cooperation Organization (SCO). Members of the SCO are China, Russia and the Central Asian Republics. At this year’s summit, Iran and India were invited as well. Though a loose consultative body with limited congruence of interests, it can be seen as an attempted geo-strategic counterweight to the US. The latter already felt the pinch, when Uzbekistan asked its troops to leave the country in 2005.

So far two thirds of the Gulf’s oil exports go to Asia, all of whose countries are as energy hungry as China. Only 3.4 percent of the worldwide oil reserves are located in this huge land mass where half of the globe’s population lives. But in the future there will be more soliciting from the US and West Europe. Germany, for example, gets a third of its oil from Russia and a third from the two North Sea producers, UK and Norway. So far, it only imports 10 percent of its needs from the Gulf countries. But as the production in the North Sea is declining rapidly, it will have to turn to other exporters soon to meet its needs. Given their reserve dominance, most likely these exporters will be from the Gulf. The US’s import dependence finally has grown from near self sufficiency until 1972 to 60 percent now. One of the first things the Bush Administration did in 2001 was to establish an Energy Task Force which basically came up with two recommendations: Oil-drilling in natural reserve parks in Alaska and geo-strategic securing of foreign oil imports.

This aggressive and unilateral securing of foreign energy sources went terribly wrong in Iraq, as we now know. The US has waged a war for oil and lost it. The Iraqi quagmire is not only causing immeasurable human loss, it also prevents any meaningful recovery of the country’s oil industry. Oil production remains stubbornly below pre war levels, which were already depressed and anti-Americanism in the region has reached new highs. The disastrous outcome has shown the limits of belligerent unilateralism and the necessity for cooperation with the producer countries and international dialogue on energy issues.

Resource conflicts can be avoided only if every side feels that it will get a fair share of the world’s dwindling energy sources. Europe so far has been content to sail in the geo-political wake of the US but may consider a more neutral stance, while the nations in the southern hemisphere especially in the rapidly growing emerging markets have rising energy needs that they want to be seen addressed. Among them are the Gulf states themselves, which have high population growth and ambitious and energy intensive development plans. Air-conditioned buildings, desalination plants and heavy industries like aluminum, steel and fertilizer – all these need energy. The Gulf countries already consume 17 percent of their own oil production and have one of the highest growth rates in energy consumption worldwide.

At the end of the day, energy conservation and new forms of energy will be needed alongside a fair distribution of oil and gas resources. It becomes increasingly discernible that there is not enough energy out there to replicate the lifestyle of the industrialized countries on a worldwide scale. International institutions like the IEA expect that the Gulf region would need to double its production over the next 25 years to meet the increasing demand projections. Saudi Arabia has already cautioned that production increases will only be possible on a more modest scale, while other experts have questioned the ability to raise production altogether, given the mature oil fields in the region.

Therefore, energy conservation, a change in consumption patterns, especially in the industrialized countries, and an international dialogue on energy issues and alternatives are badly needed to avoid the kind of unilateral coercion and violent resource conflict that we have been witnessing already.

Published: 10 Sep 2006


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Gulf in the Media